Falling Fortescue stands firm

Rania Spooner and Philip Wen

FORTESCUE Metals Group, Australia's third-largest iron ore miner, defended its cash position yesterday as the iron ore price and its own stock continued to fall, fuelling the fires of circling short-sellers.

The company startled investors at the beginning of the month by taking on a bigger than expected debt to fund its aggressive iron ore expansion plans in the Pilbara.

Yesterday, after another steep fall, Fortescue's billionaire chairman, Andrew Forrest, and chief executive Neville Power were quick to point out the non-debt market funding and liquidity options available to Fortescue should the iron ore price continue to drag.

Meanwhile, Mr Forrest picked up 10 million shares worth about $39 million this week, increasing his holding in the company to more than 32 per cent.

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Renowned short-seller Jim Chanos was the first to label Fortescue a ''value trap'', earlier this year, but others have followed as the company's price has continued to slide with its exposure to the sluggish iron ore spot price. It reached a three-year low in recent days.

Speaking in Perth yesterday, Mr Forrest said although nobody had expected the iron ore spot benchmark to fall as quickly as it had, Fortescue was prepared for $US90 a tonne, a nearly three-year low reached on Monday night.

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''We're ready for it and we can weather any storm,'' he said.

''If we decide to smooth out our capital expenditure, all the peaks in capital which gets analysts excited just don't happen.

''We've got substantial assets which are non-core, we're one of the largest owners of accommodation rooms in Australia - of airports in Australia, of non-core haematite iron ore assets, there's so many sources of liquidity which this company can rely on and we don't need to.''

Mr Forrest argued Fortescue was in ''terrific shape'' with $5.6 billion in the bank. In lieu of last year's $180-a-tonne iron ore price, he said, Fortescue was prepared to pull back on long-term pre-stripping and watering plans to save cash.

''We can just pull that back several months,'' he said. ''We can iron out our capital expenditure - that defers billions of dollars.''

Mr Power echoed his chairman's confidence and predicted a return to the previously touted iron ore floor of $US120 a tonne in the next couple of months.

''If we don't see those cash flows coming from our iron ore sales, we will turn to non-debt options to bring in extra funds,'' Mr Power said at an industry event in Sydney.

''We can take on more debt, but we don't think it's prudent to do much more of that at the moment.''